China’s Yuan Policy Does Struggling Hong Kong Retailers a Favor

(Source: Retail in Asia | 9 May 2016)

Hong Kong’s embattled retailers are finally getting a break.

After mainland tourist arrivals plunged last year as policy makers devalued the yuan, foreign-exchange moves may now encourage shoppers back to the city by making alternatives such as Japan and Malaysia more expensive. China’s central bank has this year kept the yuan closely linked to the U.S. currency, and therefore the greenback-pegged Hong Kong dollar, while allowing it to drop 11 percent against the yen and 7.4 percent versus the ringgit.

“It will help perhaps put a floor in terms of retail sales,” said Sandy Mehta, chief executive officer of Hong Kong-based advisory firm Value Investment Principals Ltd. The U.S. dollar’s slump this year will bring some respite to retailers, “but further weakness will be needed to have more of an impact and turn the tide.”

The glimmer of hope comes amid a particularly gloomy period for the city’s shops as a slowdown in the Chinese economy, President Xi Jinping’s crackdown on corruption and increasing competition from Macau take a toll on tourist spending. Hong Kong retail sales tumbled 12.5 percent in the first quarter as visitor arrivals fell, the government said on Thursday, extending 2015’s slump that’s prompted a wave of luxury store closures.

There are some signs of improvement for retailers. Visitors from China for the first day of what is locally known as the “Golden Week” May Day holiday jumped 14 percent from a year earlier to more than 200,000 people, the South China Morning Post reported, citing Immigration Department figures.

Sa Sa International Holdings Ltd., Hong Kong’s biggest personal-care retailer, on Thursday said its same store sales in Hong Kong and Macau grew 1 percent on year during the holiday. The company’s shares jumped 4.6 percent, paring their slide this year to 5.3 percent.

China’s currency has been moving in virtual lockstep with the weakening dollar versus major peers this year, providing policy makers with a veneer of stability and exporters with a boost to earnings. The yuan has fallen 0.3 percent against the greenback in 2016, and is little changed versus Hong Kong’s dollar. In comparison, an index that measures the Chinese currency’s performance against the exchange rates of 13 trading partners has dropped 4.5 percent to the lowest since 2014.